Yield Management in independent hotels

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Research Proposal

TSM 11632

Revenue management in independent hotels versus chain hotels

A case study on Maltese hotels.

Presented to:

Dr. Paul Barron

On the 3rd December 2012

By

Matriculation No: 40087634

Programme: MSc in International Hospitality and Tourism

Word Count: 4,063

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1. Introduction

Revenue management (or the yield management) is the concept that

encompasses the overall procedure of understanding, antedating and persuading

consumer behaviour, for the purpose of enhancing earnings or profits, out of fixed

and perishable resources (like airline seats, room reservation in a hotel, an

advertising inventory) (Jones & Lockwood, 2002). Over the last fifteen to twenty

years, the concept of revenue management has boosted largely, and today, yield

maximisation strategies and tactics are used in all emerging disciplines and

management science (Fyall & Garrod, 2005). Revenue management is complex to

be evaluated fully; since it covers several features like management control (this

comprises rate management, revenue stream management) and channel

distribution management (Bardi, 2010). Not only this, yield management embraces

numerous elements of marketing, operations and financial management through a

novel and efficacious approach (Enz, 2010).

In hotels, the process of revenue management is used to estimate the rates,

rooms and restriction on sales for the purpose of generating maximum outputs in

return (Jones & Lockwood, 2002). Today in hotels, yield management team has

become an inseparable part for targeting the right distribution channel in global

economy, controlling overheads, and having accuracy in market place (Fyall &

Garrod, 2005). Yield management works on the most fundamental statement of

management that is; selling rooms and services to right price, at right time to the

right people (Bardi, 2010).

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While presenting a comparative analysis, it is significant to understand the

difference between independent and chain hotels. Bardi (2010; p. 26) describes

independent hotels as those associated with a franchise, providing a greater sense

of warmth and individuality than that of any chain hotel. On the other hand, chain

hotels are owned and governed by certain corporations that do not allow their

brand name to be shared by other proprietors, but only to those with certain terms,

conditions and fixed payments according to contracts (Ismail, 2002). Conversely,

independent hotels do not allow their proprietors to use their brand names (Bardi,

2010).

Due to differences in the size, structure and functions of the both types of hotels,

their management functions also differ according to situation (Enz, 2010). There

are many medium seized and smaller proprieties, which cannot afford to hire

revenue management teams and as a result, they lack the skills as well as

expected outcomes, which would have been better produced by managing

revenue (Tevis, 2009). For example, the owners of smaller independent and

franchised hotel find it quite difficult to fully integrate yield management functions,

and therefore, they end up hiring and keeping only the front desk staff (Andrews,

2009). Revenue management is less important for them; but despite this, they

have to manage what they can afford and practical to them, by estimating certain

values (Sharpley, 2006). On the other hand, chain hotels hire several staff and they

offer luxurious services to their customers. They integrate and make use of

advanced yield management combinations (Barrio, 2010). But overall, the principle

of revenue management is simpler for hotels; it all depends on demand and supply

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chains (Andrew, 2009). In order to cover operational expenses, hotels have

executed a proper business management scenario (Tevis, 2009). Specifically in

current times of recession, it is very critical to implement sound revenue

management tactics in an organisation (Enz, 2010).

For all this purpose, this research project has been proposed to give a comparative

analysis of independent and chain hotels in perspective of revenue management.

The approach of the study is solution-oriented, specifically for independent hotels

that have to manage their resources within limited amounts.

1. Aims and objectives of research

This research project will be examining revenue management in hotels today. For

this purpose, independent and chain hotels have been selected to make this study

specific. Therefore, this project will be based on following aims and objectives:

"The aim of this research project is to highlight the differences between the

revenue management of chain hotels to the revenue management of independent

hotels.

This aim will be achieved by undergoing the following objectives:

1. To examine the significance of yield management for hotels.

2. To explore the difference in revenue management between chain and

independent hotels through several case studies.

3. To offer suitable recommendations to chain and independent hotels for

better revenue management, on the basis of literature and findings.

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2. Literature review

Literature review chapter will illustrate the research studies from a range of

journals, news sources and publications that have been developed by other

researchers. This section will assist in multiple ways; that is, by providing a sound

and critical background with an understanding of overall research, through

previous literature. Secondly, this will provide a basis of comprehending primary

information. Since, in primary research studies, it is very important to identify the

research study gaps in a study. The literature review part will be helpful in

identifying the gaps in previous studies, developing opportunity for researcher to

address those issues, and development of sound plan for the project.

1. Revenue management

Revenue management (or the yield management) has formed to be a buzz word of

our competent industry today (Rucker, 2012). Revenue Management, with its

range of definitions, have diverse functions in different fields (Voudouris et al,

2008). Its developmental stages started in after 80s, where it was widely adopted

by hotels and airlines; and till now, they have successfully implemented revenue

management (Shah, 2009).

1.1. History of Revenue Management

After government deregulation in the year 1980, airlines industry were first to

initiate a revenue management process (Jerenz, 2008). Although, yield

management was one of the commonly adopted techniques by those times for

airlines, the history of proper revenue management practices was seen after 1985,

when in competition of offering low cost carriers was initiated by American Airlines

against PeopleExpress (Yeoman & McMahon-Beattie, 2004)

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One of the initial purposes for revenue management adoption was to ensure no

less than minim number of seats, without selling at discounted rates each day; the

idea was to cover fixed cost overheads by selling adequate seats (Huefner, 2011).

Once the fixed expenses were covered by this technique, the remaining seats

were sold on higher rates to maximize gains and profits.

2. Revenue management in hotels

All the discussion given above shows that revenue management involves

supplementing the fundamental assumptions of economic supply and demand, in a

tactical way, in order to develop maximum earnings (Hayes & Miller, 2010).

Revenue management can be executed successfully if following three conditions

are there:

1. Fixed resources availability for sale.

2. Perishable resources

3. Different customers offering different rates for same resources.

All these three condition are extremely well fit by hotel industry (Sfodera, 2005).

This is quite certain that the fixed inventory for hotels is the rooms, available for

sale; and secondly, these rooms are perishable (Tranter, 2009). It is an obvious

fact that hotel rooms, just like airline seats, perish every day; that is, one room hold

tonight is gone forever. The third condition is also met by the hotels that different

segments of businesses are ready to pay unlike rates under altered conditions

(Zeni, 2001).

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Revenue management also has high relevance, specifically in cases with

increased fixed costs, compared to variable costs (Rucker, 2012). Contribution of

overall profits increases with less variable cost. This makes revenue management

extremely important for hotel management (Yeoman & McMahon-Beattie, 2004).

For successful revenue management in hotels, effective market segmentation is

extremely needed. Besides, market segmentation increases with seasonal

demands (Shah, 2009). Years of experience and expertise have revealed to

hoteliers that there are times of higher and lower demands for all hotels in the

industry (Hayes & Mills, 2010). This is important specifically for those hotels

serving in attractive areas or resorts (Huefner, 2011).

Hotels have also quickly configured that at certain times and places, consumers

will be ready to pay a maximum amount, where the rooms are there with

supervisor view; like ocean or sea views, or any other places with unique sights,

larger or unusual rooms, and rooms with specific features (Yeoman & McMahon-

Beattie, 2004).

In hotels, revenue management importance was realised and adopted at times

when the analysis of RM airlines on high side (Shah, 2009). Hoteliers examined

the supply and demand chains, beyond seasonal demands and assessed the

existing opportunities to generate maximum outputs. It works on the fundamental

notion of economics, where demand and supply forces work in a manner that, with

an increase in demand, room supply lowers and thus, the rate opportunities are

increased (Zeni, 2001).

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Because of revenue management at airlines, it is learned by hotel industry and

other sectors that, supply and demand opportunities may be grabbed the whole

year long due to conventions, group bookings and room production (which can be

carried out through website marketing), special events and local attraction, which

are all the powerful sources of driving opportunities (Tranter, 2009).

In order to initiate a revenue management process at hotels, majority of hotels

begin market segmentation first, by examining that what types of businesses can

the hotel serve, on the basis of existing market situation and the comparative

analysis of room supply versus demand (Sfodera, 2005). Secondly, it is examined

that what rates would be the best determinants for each segment of business

(Zeni, 2001).

Many authors have discussed the market segmentation breakdown, due to

location, type of hotels, the assessment that either independent room are there,

franchise, number of rooms, public space and a diverse range of other factors

(Huefner, 2011; Zeni, 2001; Shah, 2009). Each market segment can be

characterised by level of tolerance it holds, like corporate transient, online

bookings, conference groups, leisure transients, and association groups (Jerenz,

2008).

It is therefore suggested by many researchers that for hotels, it is very important

first to focus on occupancy and then on average rates (Yeoman & McMahon-

Beattie, 2004; Jerenz 2008). Advance reservation also brings an increase in rates.

According to some authors, it is a strange fact that many hoteliers think in contrast

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(Shah, 2009). The issue arises when too many hoteliers blindly set the rates,

without anticipating future needs and then panic can be seen when reservations

are opposed as they planned (Huefner, 2011). It is suggested by some researchers

that hotels should sketch the picture of reservation before six months. Many other

hotels yet should lookout a year or more in advance. In the future, the advanced

reservation is representation of occupancy demand for each night. Building future

demands can be assisted by using special rates, discounted offers and group

packages, and then the rates should be adjusted to meet the demands (Huefner,

2011, Shah, 2009, Yeoman & McMahon-Beattie, 2004).

Another aspect that most of the researchers illustrate to is keeping a check list of

past history, when viewing future reservations, with those dates, movable holidays,

and current and past booking pace (Jerenz, 2008). There is just a little room for

guess work when planning for sales strategies in revenue management. In short,

revenue management can benefit almost all hotels (Trenter, 2009). For this, it is

important to get to know the business flow of hotel and promotion of knowledge for

anticipating supply and demands (Zeni, 2001).

2.1. Revenue management in chain hotels

In chain hotels, many management staffs rate their success level by rating the

occupancy level. In general, it is not the only mean of measuring success rate.

There is yet another standard of Revenue per Available Room (REVPAR), which is

calculated by dividing the room revenue by total number of rooms. Chain hotels

execute revenue management techniques in a sound way, however, it differs from

one hotel to another (Tranter, 2009).

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2.2. Revenue management in independent hotels

Independent hotels have pass through a phase, where they end up asking the

question as to how to compete the chain hotels. All this is very significant for

independent hotels as they are owned by an individual property or small group of

hotels (Tranter, 2008). For Independent hotels, the aspects of rate integrity,

maintenance of room availability, property rating and GDS preferences and media

opportunities are not as vast as for chain hotels. Many Independent hotels do not

get involved into balancing their revenues as those of chain hotels. However,

revenue management plays an important role in maintaining the overall structure

of all hotels, including independent hotels (Hutchison, 2011).

3. Benefits of revenue management

The emphasis of majority of hoteliers is to raise occupancy, but increasing

occupancy by the means of neglecting average rates it not a feasible choice

(Bardi, 2010). There may only be the rare cases when adequate incremental

occupancies can be generated out of reduced rates for compensating the rate

reduction (Andrews, 2009). For some hotels, it is not possible to hire an expert and

experienced revenue management team to manage yields. However, there are

certain ways and techniques that can help hoteliers to improve their revenue yields

(Enz, 2010).

3.1. Adequately positioned rates

Hotels can first check if their rates are properly positioned to compete in

marketplace. For this, structuring the rates at first place is necessary to be revised.

Rates should never be settled in vacuum, it is very critical to have an advanced

knowledge of rates (Bardi, 2010). Comprehensive study of competition is advised

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here by many authors. Once it is determined correctly that what people will pay, it

will generate a worthy value for buyer (Enz, 2010). The term value covers a broad

range of aspects like hotels location, surrounding, facilities and the competitive

environment where it is operating. Overlooking the competition does not mean the

challenges are eliminated (Shah, 2009).

For this, it is a best option to carry out competitive analysis (SWOT Analysis) to

assess all the point. This will generate an idea regarding competing environment

by comparing the hotel to selected competition hotels. It does not only cover bricks

and mortars, rather many other elements are covered; like, strengths and

weaknesses of manager, sales staff and the franchise factors, etc.

3.2. The revenue management process

As discussed, revenue management covers the processes of anticipating hotel

occupancy and the corresponding market demands to evaluate how it will leave an

impact on a hotel (Enz, 2010). This is not possible to generate ideas and anticipate

occupancy without conducting a data collection research of market business flow,

the demand for hotels occupancy, the existing reservation booking pace of hotel

and the rate history (Bardi, 2010).

One of the benefits of yield management is that it helps hoteliers in adopting a

proactive approach, before the potential demand increases and reacting to

marketplace in a timely manner (Andrews, 2009).

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3. Research approach

The research methodology of this project will cover the major dimensions of

revenue management, which ascribes as a method to generate revenues from

fixed and perishable sources. From research aims and objectives, it is clear that in

order to make this project precise and specific, instead of discussing revenue

management in entire hotel industry (which will make this topic broader and

lengthier) only chain hotels and independent hotels have been selected for this

purpose. This has been shortened more toward comparing both of these types by

examining revenue management functions in the industry. Therefore, it is required

to develop to a methodology that may appropriately achieve this purpose.

Kumar (2011) determines that in any research procedure different methods and

techniques are used. These research methodologies vary from one research

analysis to another and distinctively planned so that improved outputs can be

acquired. These different methods and applications include technical research

methodologies, calculative based descriptive studies and ethnographies

(McBurney & White, 2009). The ultimate goal of all these techniques is to gather

meaningful information to draw inferences (Crowther & Lancaster, 2012).

Information can certainly be collected from various sources like, planned,

structured or unstructured interviews, consumer based surveys, focus groups,

observations, attentive team polls and surveillances (Jackson, 2010; Bryman,

2012). Broadly, there are two research approaches that can be used in any

research project, including qualitative and quantities research techniques

(Chapman, 2005). Qualitative Research techniques use illustrations in terms of

non-numeric expressions, by identifying and explaining beliefs, attitudes and

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opinions (Bryman, 2012). On the other hand, Quantitative Research technique is

entirely based on interpreting numbers which give meaningful information in form

of descriptive data, like percentages and statistical measures (Bryman, 2012).

Besides, Kumar (2011) describes that qualitative research technique is limited in a

sense that it is applicable only for limited research topics, which further restrict its

scope. For example, qualitative research approach is used only at places where it

is required to present a groundwork (or theoretical framework, discussion or

theoretical base) of quantitative research hypothesis.

In this research project, dominantly qualitative research approach will be

incorporated. In this research report, comparative analysis of revenue

management in chain hotels and independent hotels will be presented. Majority of

information will be gathered from research articles available online, in order to

develop and enhance theoretical aspect of the project.

Partially, quantitative based research techniques will also be executed. This will be

applied on the descriptive basis of project, where the major concern will be to

examine different dimensions of hotel revenue management.

1. Research design

As narrated, the major focus of this research project is to present a comparative

analysis of chain hotels and indecent hotels in terms of revenue management, for

this purpose, research design is divided further into two parts:

1. Presenting a description of comparative analysis through various research

articles.

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2. Using semi-structured interview guideline as primary research contribution.

There were a range of other choices for this research project, like survey method,

observation and focus group (Crowther & Lancaster, 2012). But the most

applicable and appropriate method was decided to be as semi-structured interview

on the basis of multiple reasons (Bryman, 2012). First of all, an organised and

standardised research procedure was required for this study to examine step by

step analysis of each comparative factors of revenue management. Semi-

structured interview technique is known to be as patterned and standardised

research technique. Secondly, Bryman (2012) describes that in semi-structured

method, the information provided is authentic, reliable and dependent, along with

an overall system of discussion, where candidates are assured for receiving equal

chances of discussion and participation. One of the other major advantages of this

technique is that, it is semi-structured by nature. That is, closed and open ended

questions are included, along with discretion to interviewer to make flexible

additions of questions at times of interview procedure, if required. An interview

guide assists into inquiring research based questions from participants, and at

times, when any new question or query comes in interviewers mind, it can

flexibility adjusted to interview guide (Crowther & Lancaster, 2012).

From this research perspective, it was very important to include the respondents

from both sides (chain hotels and independent hotels) to present their views on

revenue management in their hotels. Secondary literature will be a mean of

justifying analysis from second hand available data on revenue management in

hotels, while this attempt to conduct a semi-structured interview will be an

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endeavour to present research analysis as original contribution of researcher.

Another reason for selecting semi-structured interview is that, the flexible nature of

this kind of interview technique would allow researcher to make additions in

interview guide flexibly, if required.

In addition, it is important to divide respondents on the basis of specified Sampling

Plan. As samples, the participants from revenue department (of chain hotel and

independent hotel) will be included in this project. It is quite likely, in many small

independent hotels, where owners act as the sole managers (as identified by

secondary literature), therefore, Convenience Sampling technique has been

chosen as the most suitable technique due to some reasons. First, as a non-

probability sampling method, convenient sampling helps at times, where

convenient accessibility and proximity to researcher features are increasingly

required (Crowther & Lancaster, 2012); therefore, all those respondents associated

with revenue management departments of hotels, in one way or other, will be

included in research because of convenience of their accessibility. Due to this

sampling technique, it will be easier to conduct research technique for information

gathering and draw inferences.

2. Strategy for comparative analysis

As illustrated, comparative analysis of chain hotels and independent hotels will be

used in this project, for this purpose, an easier strategy has been developed by

researcher to present a clear research approach. This is as following:

1. Comparison offorecasting arrivals in both hotel types

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2. Occupancy rate

3. Seasonality analysis (as this is the major factor that influences the level of

room demand, and thus revenue management aspects cover this part too).

4. Reservations (to check reservations systems in hotel chains and

independent hotels and associated revenue management applications that

both of these types use to cope with this factor).

5. Cancellations (it is quite like reservations are cancelled, anytime, or even

before a day of arrival. It is very critical to examine how revenues of

independent and chain hotels are adjusted and balanced in this scenario).

6. Length of stay

7. Group reservations

8. Trend estimations

9. Unconstrained demand forecasting

10. Managing existing pricing and the pricings in coming times

11. Future distributions

12. Future revenue performance management

13. Others

Besides this, respondents will be interrogated for different questions that will cover

the factors like what drives the need for revenue management in business hotels?,

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how these hotels manage their affairs in case of limited or unlimited money? And

how has revenue management been playing its role in structured way? Besides, if

in any hotel, no organised or structured revenue management departments are

there, respondents will be asked if they think there is any need for separate

revenue management department? The research plan section will present a

description of timeframe used for this project to cover all aspects properly.

3. Data collection

Secondary data tools are those assisting researcher to examine second hand

data, which has already been researched and explored (Crowther & Lancaster,

2012; Kumar, 2011). It is specifically helpful at times when the intention is to view

the nature of existing data, any gaps in current studies, finding any opportunities or

increasing knowledge (Bryman, 2012).

Primary research studies on the other hand have an attempt to present first hand,

original information (Crowther & Lancaster, 2012), which is one of the fundamental

requirements for any research project (Bryman, 2012). This can be used in any

forms, like interview, case study analysis, systematic literature review presentation,

surveys, observations and several others (Crowther & Lancaster, 2012; Kumar,

2011). As highlighted above, semi-structured interview as a primary research

analysis will be used for this project.

For secondary literature review, some carefully selected online library databases

will be the mainstream and most critical and major parts of this report. Due to time

limitation, it is not possible to cover all secondary research approaches, since each

approach is broad and extensive by nature. As the main focus of researcher is to

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present reliable, authentic and useful information, therefore, online library

databases with dependable journals and articles information will be included as

secondary research analysis contribution. For this purpose, following databases

will be used using online university library services:

The database of Hospitality and Tourism

Academic Search Elite

Business Source Premier

EbscoHost Electronic Journals Service (EJS)

Sage Premier

Emrald

The main concern of researcher will be to include only those articles which are

quite relevant to existing study, in order to address the issue of relevancy.

4. Limitations

Due to time constraint, it is not possible to increase sampling size. Therefore, only

5 chain hotels and 10 independent hotels from Malta have been selected for this

project. Another limitation is financial constraint, therefore, no complex and

expensive methods have been used. Using semi-structure interview by visiting

these 15 hotels and gathering data is the most appropriate method to develop

information.

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5. Ethical consideration

Ethical considerations form the basis for any research project; likewise, this

research project will be cautiously developed to fulfil all university requirements as

well as general guidelines on ethics. First of all, fair means of data collection will be

incorporated, along with strict abidance of university policies on plagiarism.

Fabrication of information or duplication of results will be strictly and cautiously

addressed. Besides, respondents will be assured of privacy and confidentiality of

information they provide and the evidences delivered by them will not be disclosed

except for using academic purpose.

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4. Research plan

In order to cover this research study, following research plan has been developed:

Mar Apr

No Activity 24

26

28

30

1 3 5 7 9 11

13

15

18

2

1 Designing semi-structured interview guide

2 Sending interview request letters tocorresponding hotels and initiating secondarydata collection procedure

3 Wait for the response and completing secondary

literature review

4 Initiating interview process, gathering informationgenerated from participants, using quantitativetools to sum up results and presentation by graph

5 Drawing inferences from primary and secondary

literature.

6 Final Submission

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5. References

Andrews, S. (2009). Hotel Front Office Trng Mnl 2E, Tata McGraw-Hill Education

Bardi, J. A. (2010). Hotel Front Office Management, John Wiley and Sons

Barrio, M. D. (2010). New York City For Dummies, John Wiley and Sons

Bryman, A. (2012). Social Research Methods, Oxford University Press

Chapman, P. C. (2005). Research Methods, Routledge

Cowther, D., and Lancaster, G. (2012) Research Methods, Routledge

Enz, C. A. (2010). The Cornell School of Hotel Administration Handbook of Applied

Hospitality Strategy, SAGE

Fyall, A., and Garrod, A. F. (2005). Tourism Marketing: A Collaborative Approach,

Channel View Publications

Hayes, D. K. and Miller, A. (2010). Revenue Management for the Hospitality

Industry, John Wiley and Sons

Huenfer, R. (2011). Revenue Management: A Path to Increased Profits, Business

Expert Press

Hutchison, B. (2011). Revenue management for independent hotels [Online]

Available from: http://www.hotelnewsnow.com/Articles.aspx/5388/Revenue-

management-for-the-independent-hotel [Accessed: 15 Nov. 2012]

Ismael, A. (2002). Front Office: Operations and Management, Cengage Learning

Jackson, S. L. (2010). Research Methods: A Modular Approach, Cengage

Learning

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Jerenz, A. (2008). Revenue Management and Survival Analysis in the Automobile

Industry, Springer

Jones, P. and Lockwood, A. (2002). The management of hotel operations: ( an

innovative approach to the study of hotel management ), Cengage Learning

EMEA

Kumar, R. (2011). Research Methodology, APH Publishing

McBurney, D. H. and White, T. H. (2009). Research Methods, Cengage Learning

Rucker, M. (2012). Revenue Management Integration: The Financial Performance

Contribution of an Integrated Revenue Management Process for the

Service Industry on the Example of Hotel Chains, GRIN Verlag

Sfodera, F. (2005). The Spread of Yield Management Practices: The Need for

Systematic Approaches, Springer

Shah, J. (2009). Supply Chain Management: Text and Cases, Pearson Education

India

Sharpley, R. (2006). Travel and Tourism, SAGE

Tevis, P. (2009). San Francisco For Dummies, John Wiley and Sons

Tranter, K. A. (2009). An Introduction to Revenue Management for the Hospitality

Industry: Principles and Practices for the Real World, Pearson Education

India

Yeoman, I. and McMahon-Bettie, U. (2004). Revenue Management and Pricing:

Case Studies and Applications, Cengage Learning EMEA

Zeni, R. H. (2001). Improved Forecast Accuracy in Airline Revenue Management

by Unconstraining Demand Estimates from Cen, Universal-Publishers

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Yield Management in independent hotels

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